Wednesday, October 15, 2008

Community banking executives around the country responded with anger yesterday to the Bush administration's strategy of investing $250 billion in financial firms, saying they don't need the money, resent the intrusion and feel it's unfair to rescue companies from their own mistakes.

But regulators said some banks will be pressed to take the taxpayer dollars anyway. Others banks judged too sick to save will be allowed to fail.

The government also said yesterday that it will guarantee up to $1.4 trillion of private investment in banks. The combination of public and private investment is intended to refill coffers emptied by losses on real estate lending. With the additional money, the government expects, banks would be able to start making additional loans, boosting the economy.

President Bush, in introducing the plan, described the interventions as "limited and temporary."

"These measures are not intended to take over the free market but to preserve it," Bush said.

On Capitol Hill, lawmakers from both parties praised the plan and scrambled to take credit for writing provisions into the law passed almost two weeks ago that allowed the government to switch from buying bad loans to buying ownership stakes in banks.

On Wall Street, bank stocks soared even as the broader market stayed flat while investors grappled with economic concerns. The Dow Jones industrial average was down 0.82 percent, or 76.62 points, to close at 9310.99 one day after its largest percentage gain in more than half a century.

And in offices around the country, bankers simmered.

Peter Fitzgerald, chairman of Chain Bridge Bank in McLean, said he was "much chagrined that we will be punished for behaving prudently by now having to face reckless competitors who all of a sudden are subsidized by the federal government."

At Evergreen Federal Bank in Grants Pass, Ore., chief executive Brady Adams said he has more than 2,000 loans outstanding and only three borrowers behind on payments. "We don't need a bailout, and if other banks had run their banks like we ran our bank, they wouldn't have needed a bailout, either," Adams said.

The opposition suggested that the government may have to continue to press banks to participate in the plan. The first $125 billion will be divided among nine of the largest U.S. banks, which were forced to accept the investment to help destigmatize the program in the eyes of other institutions.

In rolling out the program, Treasury said it would make the rest of the money available to banks that requested it. Officials said they expected thousands of banks to participate.

But both the American Bankers Association and the Independent Community Bankers of America said that they knew of few banks that planned to participate.

"I'm not sure we've heard from any that want to participate," said Karen Thomas, vice president for government relations at the community bankers group, which represents about 5,000 banks. "That said, if any community banks do enroll, we anticipate it will be just a small minority."

Federal regulators said they did expect some banks to volunteer, though none stepped forward yesterday. But they added that they would not rely on volunteers. Treasury will set standards for deciding which banks can be helped, and the regulatory agencies will triage the banks they oversee: The institutions faring best and worst will not receive investments. The institutions in the middle, whose fortunes could be improved by putting a little more money in the bank, will be pushed to accept the money from the government.

"We will encourage institutions to apply," said John C. Dugan, the comptroller of the currency, who oversees most of the nation's largest banks.

In return for its investments, Treasury will receive preferred shares of bank stock that pay 5 percent interest for up to five years. After that, if the companies haven't repaid the government's initial investment, the interest rate goes up to 9 percent.

Participating banks cannot increase the dividends they pay to shareholders without federal permission, they must accept some limitations on compensation for their executives, and Paulson said the government would press companies to limit mortgage foreclosures.

The government decided not to impose an explicit requirement that banks use their taxpayer dollars to increase lending. But regulators said they will watch banks closely. They also noted that banks have less reason to hoard money now that they can borrow more easily. Most important, however, they said, banks want to make money.

The basic insurance program still guarantees all bank deposits up to $250,000. A new supplemental program guarantees all deposits above $250,000 in accounts that don't pay interest. The program basically covers accounts used by small businesses.

Some European governments had already guaranteed deposits, creating a competitive advantage for banks in those countries. Banking regulators also were concerned that small businesses were transferring deposits from community banks to larger institutions perceived as less likely to fail. Finally, small businesses contributed to the failure of Washington Mutual and the collapse of Wachovia by pulling uninsured deposits from those banks.

The FDIC estimates that this new guarantee could cover up to $500 billion in deposits. Banks that sign up for the insurance -- and bankers agree that everyone will participate, for fear of ceding an advantage to rivals -- will pay a premium of 10 cents on every $100 in deposits.

The combination of the existing and new guarantees will cover about 80 percent of the $7 trillion in deposits at the nation's banks. The bulk of the uninsured deposits are held in interest-bearing accounts, such as certificates of deposit, that tend to be marketed and regarded as investment products.

Sheila C. Bair, chairman of the FDIC, said the agency considered guaranteeing all bank deposits but decided that any potential benefit was outweighed by the risk that a guarantee on interest-bearing accounts would attract a huge inflow of deposits currently held in money-market mutual funds.

"We're trying not to stabilize one part" of the financial system "and destabilize another part," she said.

Separately, the FDIC is creating an insurance program to encourage investment in banks by guaranteeing that investors won't lose money. Participating banks will pay the FDIC a fee of 75 cents on each $100 in debt that they sell to investors. The FDIC will guarantee through June 2012 the debt issued by participating banks before the end of June 2009. If the bank goes bankrupt, or defaults on its debt, the FDIC will pay the investors.

To prevent banks from running up massive debts on the government's tab, the program limits banks to a 25 percent increase from their current level of borrowing. The FDIC estimates that the maximum amount of debt that banks could issue under the program is about $1.4 trillion.

Bair also said that the FDIC may refuse to guarantee debt issued by banks with financial problems, though she declined to discuss specific criteria.

Bair acknowledged that the new guarantees shelter banks from the immediate consequences of misbehavior because depositors and investors have no incentive to remove their money from an institution if they know that the government stands behind it.

But Bair said the government's first priority was to stabilize the industry.

"The risks of moral hazard were simply outweighed by the need to act and act dramatically and act quickly," Bair said.

Dugan offered a slightly different perspective.

"It just means we've lost one tool and we're going to have make sure that we compensate," he said.

1 comment:

Anonymous
said...

As in any previous form of government ever devised, what initially started as good in theory, has as always been replaced with a form of ruling elite vs. peasant mentality, “let them eat cake,” with greed, avarice, and human nature now morphing what should be for the good for all, into serving only the minute percentage at the top.All previous methods of protest now prove ineffective, your vote counts nothing in a world of superdelegates, civil disobedience has no real effect, in reality they in charge are fully equiped to deal with such, and hope it is these tried and true means that are attempted. Business then goes on as usual.In Indiana, property taxes and the process itself have gotten out of hand. I proposed an idea, distributed this idea with print, email, with the “pyramid scheme” method of one telling five, exponential distribution. This idea a novel approach, instead of all feeling a total sense of helplessness at facing the government,” We the People” realize the idea that there are thousands of us to each of those in charge, and through exercising of our rights under the law, and applying these rights to procedures, job descriptions, etc. at a rate the system was never designed to handle, we can and will gridlock any governmental agency to an extent to which they cannot over-ride. This idea, again novel in approach, has been overlooked, though simple in idea, it would be an immediate, all-encompassing fix for any governmental stupidty thrown at us, with those now secure in their arrogance, seeing firsthand what we, their bosses, can and will do when pushed past the point of reason. Just as they have warped the ideas of laws conceived to preserve a give and take between goverment and the people, in reaching a solution for the common good of all, and made it into the inevitable we give, they take,and take, it is time we take it all back to where it should be.My proposal here is to have each person in Indiana, per county, use the tax appeal process to put the tax system itself out of business, this being one of a myriad of processes at local, state, and federal level, that if exercised by EVERY individual at every instance, would create total chaos and an inability to do for the individual what is required by law for them to do. All using the most protected rights of each individual, all written in the law, all perfectly legal. The processes, applications, settings, offices have been designed to apply bully tactics, to humiliate and intimidate the individual, instill the sense of helplessness, what can one person do against the mighty government. Broken down to individuals, very few at top levels, in small numbers of offices, force conditions on the average citizen we should never have needed to live. It is when the individuals bullied, realize as a whole the bully is powerless against the many united, that eventually the wrong is righted, the bully no longer able to again use the tactics for control.My proposal in Indiana is to have all taxpayers file form 130, forcing them to schedule all at a tax appeal board meeting, not possible if at 20-30 minutes per taxpayer, 20000 filing. The first possibility of sucess, not knowing if my ideas were passed on, or others thought it up, but Marion County released re-assesment tax bill a few weeks ago, a first wave of 10000 appeals flooded in, the system is backlogged according to the Indianapolis Star 6-8 years at the previous rate, this in the first 2 days of a 45 day appeal window, they have no idea how to proceed….I really don’t think 10000 came up with that on their own….We will have to see in my home county, and state-wide, how far reaching my paperwork spread, I cannot tell, but at least in Marion County, someone ran with it….This was my first plan, it actually needing a large percentage of citizens to agree and act, there too being the possibility of individually “facing the enemy” should they try to process as usual, many truly fearful of then being placed on the proverbial “list” for payback in the future, many buying into the fears manufactured by the government.Once freed of the previous limitations of protest, my idea in reality not being a protest but individuals taking advantage of their rights as Americans, with the realization by all that those against whom we wish to address issues no longer having a say in the proceedings, that their own rules of ways to question their authority no longer have any merit, that we the people can and will at every instance of tyranny, ineptitude, greed, arrogance, can and will from this point on, take their working environment out at a moment’s notice, and will only grant a repreive when apologies have been given, processes begun to right the wrongs, and promises made to get back to the ideals the founding fathers dreamed possible, when bullied by the same governmental interference those in power have returned this very nation back to. We all do understand the need of taxation and services, it it the pork and bloat that has to go, the illegal and illogical….The distillation of our rights under the law, their job descriptions, methods, office procedures, all distilled down to the ” least common denominator,” allows even simpler examples, involving smaller percentages, with greater immediate impact.One example, our right to receive information from any public servant, at any level, any time, as many times as needed, whether the question be good or bad, relevent or irrelevent, to the citizen it is important, those in government when hired are more than versed in the idea that ” no question is a stupid question,” , it is in their job descriptions. From the office procedure arena, we distill down to that item that no governmental agency in the modern era can function without, the phone system, and then combine the two, at a rate again it is not possible to deal with. Small cards, as per wallet-sized sports schedules, with all pertinent county, state, federal numbers on each. All required to answer anything “We the People” wish to ask, we each having a combination of a cell phone, 3 minutes per day, once a day to run the list, and in the very small chance of getting through, ask away. Any legitimate business now needing to be done by mail, or at the office windows in person, total meltdown of any agency or office making that weeks or months list.( A website needed to address each week/month’s “hit list’”) A one week initial period to show what can be permanent, a statement sent of a 3 month reprieve to start the repairs and changes necessary to eliminate ALL the waste in EVERY office and division, and the promise that if none noted or initiated, a one month then 6 month meltdown, etc., until permanent silence is given. This once again, all perfectly legal, within the scope of what they are required to do, BY LAW, it having no fix on their side, other than doing as is required, we doing as stated, and living up to our guidelines and timelines. Or any other action deemed effective, I am trying to plant the seed, others can most probably fine tune as needed….Again, this one of an infinite number of legal actions we can and will apply, with no need for input or rebuttal by them in any way, shape or form. Any manipulation of our rights, forces immediate lawsuit, bankruptcy by attorney actions, their is no answer to the public exercising their rights, we are doing nothing illegal.Run this by anyone you speak with, have them judge themselves that with ALL seeing the ease of this approach, the immediacy of those we vote in seeing our response to the idiocy we live with daily, that this is truly an immediate solution to begin correction by those stepping outside the Constitution, in piling the Trillions on even future generations, that it will work,then view the immediate smile by all that “we don’t have to take it any more.” Someone with your connections and stature is needed, with the means to disemminate these ideas, or other ideas using the same basis, I am a small fish in a small pond, but try my best….Any feedback , positive or negative, would be appreciated, I have attempted to write some, but have no idea where to start, or if I am too idealistic in thinking this easy of process and idea might be the solution we all have missed….. I appreciate any time given reading this…Thanks much